Apple announced a new streaming music service, as expected, today at WWDC 2013. Called iTunes Radio, the service has the most in common with Pandora and, for reasons I’ll get to in a minute, it’s already behind the times. First, the basics, as TechCrunch reports:
iTunes Radio is essentially what we’ve been hearing it would be: a streaming music service that takes your tastes into account in order to play tracks that are likely to be in line with your tastes. Apple really has essentially taken its Genius jukebox-style feature, which combs your library and builds genre-based playlists, or suggests recommended artists and tracks based on what you’re currently listening to. The difference with the new service is that it can access the entire iTunes catalog, which, at this point, is well over 26 million tracks.
The service will be free, and available to U.S. users in the fall.
In the lead up to this release, I kept wondering why Apple would go the Pandora route rather than the Spotify route. It looks like we have an answer: because Apple is still holding out hope that we’ll download MP3’s from iTunes.
I was thinking of Apple’s move as a clean break, a fresh start, an admission that the iTunes/iPod model – successful as it was – is over. Like many users, I don’t want to pay piecemeal for music; I want a single description I don’t have to think about.
Start with the basic economics… Songs in iTunes range between $0.69 and $1.29. For $9.99 you can get a premium account on Spotify, which includes ad-free streaming of any song you want within its catalog (rather than the Pandora/radio approach which offers less control) as well as downloads to your phone for those times when you’re offline. Taking the iTunes mid-point of $0.99, if you’re looking to download more than 10 songs a month – roughly one CD – Spotify is the better buy.
Except even that understates Spotify’s edge in this comparison. The flaw in the iTunes model has to do with the “pain of paying.” Simply put, humans don’t like to part with their money, and this manifests itself in weird ways. The difference between something that is free and something that costs a dollar should be the same as something that costs one dollar and something that costs two. In both cases the difference between the two is whether to save a dollar. But we perceive the former difference to be significant and the latter difference to be trivial. As a result, getting users to click “buy” in iTunes is hard.
Spotify’s subscription model nicely dodges this. I only experience that pain in the moment that I subscribe, or at most once a month if I check my credit card bill. And once I have access to that whole library (now seemingly “for free”) I end up consuming more music. The subscription model is a psychologically more rewarding experience.
(Netflix has taken advantage of this phenomenon; binge watching a TV show would be much less satisfying if you had to click “Buy” between every episode.)
Apple probably convinced itself that it’s the perfect company to run an internet radio service, as it has the complementary iTunes library to funnel purchases. The reality is quite the reverse. The existence – and perhaps internal clout – of iTunes is blinding the company to the flaws in the micro-payment model. Streaming + subscription is the future, and Apple is going to miss out.
